ECB holds key rate at 2.5% as markets bet on a December hike
The central bank stands pat but warns of rising energy prices. Economists expect a rate increase in December. French bond yields add to concerns.
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The European Central Bank (ECB) left its key interest rates unchanged on Thursday. The deposit rate stays at 2.5%, the main refinancing rate at 2.65% and the marginal lending rate at 2.90%. The bank had raised rates twice earlier this year, most recently by 0.25 percentage points in September, because of energy prices driven by the Iran war. ECB President Christine Lagarde said the decision was unanimous.
The ECB said energy prices "continued to rise, posing upside risks to the inflation outlook and downside risks to the growth outlook." Euro zone inflation rose to 3.8% in September, nearly double the 2% target. Lagarde said policymakers had discussed a further hike but judged it unnecessary, adding that December's decision would be based on the data. A Reuters poll found most economists expect a rate hike in December.
France is another source of concern: its 10-year bond yield stood at about 5% on Thursday, a spread of roughly 155 basis points over German debt. Lagarde said "the primary and first solution lies at home in France." The ECB also said financing conditions had tightened since its last meeting, and the European Commission's economic sentiment indicator for the euro zone fell to 96.9 in October. Earlier the same day, Lagarde announced she would step down early, on Feb. 7, 2027.